USDA Report, Jobs Numbers and Grain Prices
Mar 09, 2012
The trade will obviously be digesting this morning USDA numbers. As expected nothing too exciting. Somewhat bullish soybeans, neutral to bullish wheat, while neutral to bearish corn. My guess is we trade lower out of the gates, but as the market starts to re-focus on the March 30th USDA stocks report we might start to see a more bullish tone come back into favor. Producers need to remain patient, specs can look to buy soybeans on the breaks.
The questions being raised early about the report are: How can world soybean production numbers be cut by another 235 million bushels, but the USDA sees no additional demand for US exports? How is Argentine corn production left "unchanged" at 22 million metric tons? How is Brazil's corn production raised to 62 million metric tons? How did the USDA increase Argentina's 2010-11 corn crop by 1.25 million metric tons with no explanation? The highlights are as follows:
- Lowers Brazil bean crop 3.5 million metric tons to 68.5 million
- Lowers Argentine bean crop 1.5 million metric tons to 46.5 million.
- Lowers World soy stocks to 57.3 million tons vs 60.28 million last month.
- Lowers World corn stocks to 124.5 million tons vs 125.4 million last month.
- Leaves Argentine corn production at 22 million tons the same as last month.
- Raises Brazil's corn production by 1 million metric tons to 62 million.
- World wheat crop raised to 694 million metric tons vs 692.9 million last month, while stocks drop to 209.6 million vs 213.1 last month
- US soybean stocks unchanged at 275 million bushels
- US corn stocks unchanged at 801 million bushels
- US wheat stocks down 20 million to 825 million bushels, on a 25 million bushel increase in exports and a 5 million bushel reduction in food usage.
Regardless of the numbers, there seems to be a little more buzz starting to circulate in the trade in regards to a paradigm shift that could be taking place in wheat, corn and soybeans. For years corn was regarded exclusively as a feed grain, while wheat on the other hand was traded at a premium because of its demand for human consumption. Now all of a sudden corn becomes a prominent player in the fuel industry and its economic importance, or should I say "value" seems to be equal or maybe even greater than that of wheat. We have seen this transition take place right before our eyes. No longer can we assume or guarantee that CBOT wheat is going to trade at a premium to CBOT corn.
The "corn vs. soybean" ratio may be the next major shift taking place. Some well respected sources are thinking we may soon see a major adjustment made in the "corn vs soybean" ratio. In this instance though the argument is being waged that soybeans need to gain in value compared to corn because of soy's exclusive "protein" qualities. With the world demand for beef increasing, along with a continued push for a higher protein diet there is definitely an argument that can be made defending the importance and premium for soy. In other words, if "protein" becomes King, then corn may soon loose it's crown.
I have no idea how long a shift of this magnitude could take to play out, but with extremely tight supplies being forecast by many large firms and analyst, I strongly urge you NOT to bet against the "corn vs soybean" ratio extending out even further in the weeks and months ahead. I know beans have rapidly gained on corn as of late, but "smart" money believes we might just be seeing the tip of the iceberg, as we are due for a massive shift in "value" that favors soy, especially as ethanol production looks as if it may have flattened out. In fact I am starting to hear more talk that bigger traders are building longer term positions that consist of "long meal against short corn positions," or long SX12 vs short CZ12 or short CU12. If protein demand becomes of primary importance, like some are now betting, the job of the markets will be to encourage more soybean acres here in the US and in South America... You and I both know it will take higher prices in relationship to corn to make this happen. Just something to think about moving forward, and certainly good reason NOT to be caught long "corn vs short" soy in this environment.
US wheat continues to remain competitive despite all of the talk about "Black Sea" wheat coming back onto the scene. This was confirmed as US exporters won their third straight Egyptian grain tender, selling Egypt an estimated 60,000 tons of US soft red winter wheat at around $259 a ton. From what I hear the US price was cheaper than wheat being offered by Ukraine ($277), Canada ($268) and France ($287). The problem moving forward is that "Black Sea" exporters are thought to be coming back online in a more prominent manner and talks of wheat soon being offered at sub $250 per ton are starting to circulate. It will certainly be interesting to see if we can stay competitive as more bushels hit the marketplace.
Lets also not forget Informa will be out at 10:30am CST giving us updated 2012 US acreage numbers...could be interesting, my bet is for more soybean acres.
As for the "outside" markets... All eyes are focused on monthly US employment numbers. The data showed we created 227,000 total jobs in February. Most in the trade were looking for the number to be around 215,000 new jobs being created, so we were slightly better than expected. The unemployment rate was unchanged at 8.3%. Some are arguing at least 10-20% of the jobs we have seen created this winter are due to the abnormally warm weather conditions. I was in a Quick Trip convenience store in early Feb while out on the speaking circuit, the store was essentially bare, I asked the store manager what was going on and he told me the abnormally warm weather had been bringing in the construction workers in much larger numbers than in the years past. Since their ordering and stocking levels are pre-arranged based on previous years buying patterns the store had been left in short supply. My point is, I wonder how much of this recent economic boost has been due to the extremely friendly winter weather conditions?
The markets can also breath a slight sigh of relief after most reports indicate that nearly 95% of Greece's private bond holders will agree to the debt swap deal. Rather than forcing a disorderly default, investors now agree to receive just a fraction of their investment. Most thinking Greek bond holders will take a hit of about 74%.
There was also bevy of Chinese economic data released overnight (CPI/PPI, retail sales, industrial production, etc...). One of the biggest surprises might have been China's "Consumer Price Index" coming in at a weaker-than-expected rate of 3.2%. This is the lowest consumer inflation rate in 20 months, sharply lower than the 4.5% seen in January, and well below July's rate of 6.5%. The producer price index for February fell as well, coming in at 0%, also weaker than expected and slowing from January's 0.7% year-on-year increase. The trade believes numbers like this should give China the opportunity to boost their economy and make them more inclined to ease monetary policy moving forward. It does however confirm that the Chinese economy is continuing to slide.
March 2012 USDA / WASDE Data Included Below:
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USDA Grain Carryout 2011/12 (billions of bushels)
|
| |
Range of Guesses
|
|
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USDA #s
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Mar. Guess
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Low Guess
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High Guess
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Feb. USDA #s
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|
Corn
|
0.801
|
0.785
|
0.746
|
0.825
|
0.801
|
|
Soybeans
|
0.275
|
0.260
|
0.225
|
0.275
|
0.275
|
|
Wheat
|
0.825
|
0.840
|
0.811
|
0.898
|
0.845
|
|
Global Ending Stock Numbers
|
| |
Range of Guesses
|
|
| |
USDA #s
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Mar. Guess
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Low Guess
|
High Guess
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Feb. USDA #s
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Corn
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124.5
|
123.470
|
122.000
|
125.00
|
125.350
|
|
Soybeans
|
57.3
|
57.760
|
56.000
|
59.950
|
60.280
|
|
Wheat
|
209.58
|
212.610
|
210.000
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216.000
|
213.100
|
|
Main South American Numbers (in million metric tons)
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| |
Range of Guesses
|
|
| |
USDA #s
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Mar. Guess
|
Low Guess
|
High Guess
|
Feb. USDA #s
|
|
ARG Corn
|
22
|
21.250
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20.000
|
22.000
|
22.000
|
|
ARG Soy
|
46.5
|
46.825
|
46.000
|
48.000
|
48.000
|
|
BRZ Corn
|
62
|
60.195
|
59.000
|
61.500
|
61.000
|
|
SOY Corn
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68.5
|
69.400
|
68.000
|
71.000
|
72.000
|
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